ANALYSIS-Canadian cable TV's 'a la carte' menu begins to take hold

NEW YORK/TORONTO, Sept 19 A transformation in
how some Canadian cable TV companies sell channels to consumers
might be a sign of things to come in the much bigger U.S.
market.

With "a la carte" pricing, cable companies are offering
Canadians an alternative to "take-it-or-leave-it" bundles that
effectively force viewers there - and in the United States - to
pay for channels that they do not watch in order to get access
to those they do.

The Canadian Radio-television and Telecommunications
Commission pushed the change when the regulator "strongly
encouraged" the introduction of more-flexible packages two years
ago. And Canadian consumers seem to like what has been
happening.

In the largely French-speaking province of Quebec, for
example, industry sources estimate that 70 percent of viewers
buy a very basic TV offering of mostly broadcast fare and then
pay for small groups of cable channels from a long list ranging
from Discovery Channel to BBC Canada.

Meanwhile, U.S. media companies are fighting the a la carte
concept ferociously. Walt Disney Co, Time Warner Inc
and others worry that subscribers will drop less-popular
channels. And with fewer subscribers forced to pay for pricey
channels like sports cable network ESPN, the cost will increase
for viewers who want them, the companies say.

Needham Research estimates that a purely a la carte model
would wipe out $70 billion in revenue for the U.S. TV industry
and that fewer than 20 U.S. channels would survive if consumers
had to pay for each one separately.

"The bottom line is that the Canadians are way ahead of the
U.S. in this realm," said pay TV expert Jimmy Schaeffler of the
Carmel Group.

FIGHTING AGAINST DEFECTION

More flexible programming packages may help U.S. cable
companies prevent people from defecting to cheaper
Internet-based offerings from the likes of Netflix Inc
and Amazon.com Inc.

MoffettNathanson Research estimates that about 2.2 million
U.S. households have canceled their cable video service since
2010. About 35 percent of cable video subscribers whom Ipsos
polled for Reuters in August said they were considering such a
move in the next six months.

In Canada, Vancouver-based Telus Corp, one of the
nation's largest telecom companies, has used the a la carte
strategy as a major selling point since it aggressively expanded
its Optik TV service several years ago. Since 2011, the number
of its TV subscribers, mainly Optik customers, has more than
doubled to nearly 750,000.

Other Canadian cable companies have moved with
varying degrees of intensity: BCE Inc's Bell has
matched the pick-and-choose deal offered by Quebecor Inc's
Videotron in Quebec. In the most populous province of
Ontario, Rogers Communications Inc and Bell have been
less open to such change.

Overall, the Canadian market is at a hybrid stage, combining
bundling with some a la carte offerings.

For example, Telus offers a pared-down basic package without
sports channels for a regular price of C$29 ($28.11) a month to
people who also subscribe to its Internet, home phone or mobile
phone service, and allows them to add up to 50 individual
channels for C$4 each.

It may hurt the bottom line in the short term, but it also
creates more loyal customers who combine a lower-margin TV
subscription with more-lucrative services such as broadband,
Telus Chief Executive Officer Darren Entwistle told Reuters.

"We've just taken a longer-term view for the service," he
said, with the "significant" economic returns expected to come
from the noncable services.

Videotron cuts out both sports and U.S. networks such as
ABC, NBC and CBS from its basic package, which costs C$25.10 a
month when combined with at least one other service. However,
customers can pay extra for a package of additional channels of
their own choosing in bundles of 5, 10, 20 or 30, which would
bring their total TV bill to between C$37 and C$55.

MORE FOR LESS?

Some experts say viewers may pay more under an a la carte
system than through bundling.

"Consumers in most a la carte models end up paying more or
less the same as what they were paying before, and all they have
to show for it is that now they have fewer channels," said
MoffettNathanson research analyst Craig Moffett.

Some cable operators have shied away from the a la carte
model, in part because major programmers discouraged it. Much of
the most popular programming in Canada comes from south of the
border, and U.S. media companies that negotiate these contracts
have been pushing back against Canadian cable companies that
want to offer programming on more-flexible terms.

Some U.S. media companies are seeking guaranteed fees for a
channel and sometimes lost ad revenue as fewer people subscribe,
said David Purdy, senior vice president of content at Rogers.

Two U.S. programmers interviewed by Reuters said they would
have to charge the Canadian operators more to carry their
channels if the a la carte model is widely adopted.

Rogers, the largest Canadian cable operator, sells its most
basic package for C$38.67 in Ontario, C$15 more than Telus'
Essentials in British Columbia. A Rogers subscriber can then add
some additional channels at C$2.80 each.

The number of Rogers TV subscribers has declined to 2.19
million subscribers from 2.30 million in late 2011.

"We are fighting aggressively for more-flexible packaging
options," Purdy said. "Our fear is that if we don't innovate in
this regard, we will see lower penetrations of people paying for
television."

PICK WHAT YOU WANT?

Some Canadian viewers also want the a la carte push to go
further.

Isaac Zeitoune, a 37-year-old financial planner and Bell
satellite TV customer in Montreal, says he likes to choose which
15 channels he gets because he wants Disney Channel for his
kids, some reality show channels for his wife and Canadian
business channel BNN for himself.

But he wishes his package would also include CNBC and CNN,
which are part of a 20-channel package that costs an additional
C$5 that he does not want to pay.

Matthew Polka, CEO of the American Cable Association, a
lobbying group for 850 smaller independent cable companies, said
U.S. operators should study how their Canadian counterparts deal
with the challenges of offering more choices to consumers.

"It's not perfect (in Canada)," he said, "but it's better
than the forced, bloated expanding bundle than we have today" in
the United States.

($1 = 1.0318 Canadian dollars)
(Reporting by Liana B. Baker in New York and Alastair Sharp in
Toronto; Editing by Ronald Grover, Martin Howell and Lisa Von
Ahn)

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